Vat question

Aditya Murthy (CA-Final Grp 1 cleared) (27 Points)

04 August 2012  

In case if a company's sale procedure is as follows:-

~Company sells to Distributor          THEN

~Distributor sells to Retailer

Here if the Company is selling 1000 units of goods worth Rs1000 to the distributor and the VAT applied @ 4% ie Rs40, then if the distributor sells it to the retailer at a trade discount ie 10%.

From distributor's point of view:-

Sale Price{eg} Rs 1500
After Discount price Rs  1350
VAT applied @ 4% Rs   54
Final Invoice Price Rs  1296

From Company's point of view:-

Sale price Rs 1000
VAT applied @ 4% Rs  40
Final Invoice Price Rs  960

Here the Company gives commission to the distributor on sales made by him.

IF I am an Internal auditor of the Company and I am given the claim of the distributor who is claiming commision from the Company.

MY QUESTION-

1) So in this above case isn't the distributor claiming excess VAT from the company?

{ It is because I feel the distributor is selling at a discount to the retailer hence the distributor must claim less VAT from the Company

Ie he must be claiming only Rs36 ([1000-10%discount] * 4%) and not Rs40 }